UK Carbon Border Tax Starts on 1 January 2027: India Seeks More Talks to Protect Exporters
The United Kingdom's Carbon Border Adjustment Mechanism (UK CBAM), a charge on the carbon emitted while making certain imported goods, starts on 1 January 2027. India has sought further talks with the UK before it begins.
The UK CBAM covers imports of aluminium, cement, fertiliser, hydrogen, and iron and steel. Indian steel and aluminium exporters are the most exposed.
The UK has not given any exemption to its free trade agreement (FTA) partners. The India-UK Comprehensive Economic and Trade Agreement (CETA), in force since 15 July 2026, does not exempt Indian goods from the UK CBAM.
In September 2026, the UK added India's Carbon Credit Trading Scheme (CCTS) to its indicative list of overseas carbon pricing schemes. This means a carbon price actually paid in India can reduce the UK charge, but only if exporters prove their emissions under UK verification rules and show the carbon cost was really paid.
Talks continue through technical channels, including the UK-India Energy Memorandum of Understanding (MoU) and the Partnership for Market Implementation.
Carbon Border Adjustment Mechanism (CBAM): The EU's Carbon Charge on Imports
A Carbon Border Adjustment Mechanism is a carbon price charged at the border on certain imported goods, based on how much carbon dioxide was released while making them. The European Union (EU) created the first one, and the UK has built its own version. The idea is simple: if a factory at home pays for its pollution, an importer of the same product should pay a similar amount. This stops companies from shifting production to countries with weaker climate rules, a problem called "carbon leakage".
Indian steel and aluminium already face the EU CBAM. From January 2027, the UK will apply a similar charge, which may eat into the tariff gains Indian exporters won under CETA. That is why India wants more talks before the rollout.
Carbon Credit Trading Scheme (CCTS), India
The Carbon Credit Trading Scheme is India's own domestic carbon market. Big polluting industries get a target for how much greenhouse gas they can release for each unit of product they make (called emission intensity). Those who do better than the target earn carbon credit certificates that they can sell. Those who miss it must buy certificates. This puts a price on carbon inside India.
Recognition of the CCTS is India's main tool to cut the UK CBAM bill. But since relief is linked to the carbon price actually paid, and India's credit prices and coverage are still building up, the relief may be small at first. This is one reason India is seeking further talks.
India-UK Comprehensive Economic and Trade Agreement (CETA)
The India-UK CETA is a free trade agreement between India and the United Kingdom. It removes or cuts import taxes on most goods traded between the two, and opens up trade in services. It was signed on 24 July 2025 and came into force on 15 July 2026, together with a Double Contribution Convention (DCC) on social security payments.
CETA cut UK tariffs on Indian steel and aluminium, but the UK CBAM could bring back a cost at the border from January 2027. India's push for further talks, and its right to rebalance concessions, are about protecting the value of the trade deal.
- UK CBAM start date: 1 January 2027
- Sectors: aluminium, cement, fertiliser, hydrogen, iron and steel
- UK registration threshold: £50,000 of CBAM goods in 12 months
- First UK CBAM return (for 2027 imports): due 31 May 2028
- No CBAM exemption for FTA partners, including India under CETA
- CCTS added to the UK's indicative list of overseas carbon pricing schemes: September 2026 (relief conditional on verified emissions and actual carbon cost paid)
- CCTS notified: June 2023, under the Energy Conservation Act, 2001 (amended 2022); administrator: Bureau of Energy Efficiency
- EU CBAM definitive phase: from 1 January 2026
- India-UK CETA: signed 24 July 2025; in force 15 July 2026